Big projects and risk management
A plethora of rail and infrastructure projects provide opportunity, but it will be those who prepare for risk who are likely to prosper.
Infrastructure, and particularly rail infrastructure, is being rolled out in a major way across the nation’s capital cities.
This is driven by the long term need to manage growing populations, topped off with the short term need to stimulate economies at a time of global pandemic.
Infrastructure advisors Donald Cant Watts Corke recently prepared a report outlining the combined infrastructure ‘big spend’ of the New South Wales and Victorian governments as being of $3.2bn per month for the foreseeable future. Such big-ticket projects provide significant investment opportunities for financiers and the chance to win lucrative contracts for developers – a considerable construction program to be sure.
But it is not all about beer and skittles; while those companies that play their cards right can indeed make a ‘motza’, companies can be exposed to risk, with the pandemic impacting the supply of resources – particularly human – and heavy machinery.
The DCWC report noted supply chain constraints as early as 2018 (well before the pandemic), quoting Australian Construction Association figure Lindsay Le Compte as saying: The client has an obligation to ensure that they have undertaken all of the relevant background investigations to enable them to develop an appropriate tender specification.
DCWC infrastructure division managing director Peter Gill has a detailed knowledge of this issue. He said a focus of this ‘big spend’ is going to be rail and many resources required for rail projects have become harder to source.
“The focus of that ‘big spend’ is going to be in the rail sector,” said Gill,
“We are looking at major projects such as the Suburban Rail Loop, the Melbourne Airport Rail Link and the Sydney West Metro route from Central to Parramatta and Westmead,” he said.
“So, this big spend is going to be in the rail infrastructure sector and there are some significant challenges.”
So, what are these challenges?
The first one is resources, particularly human ones. He notes there was previously easy access to such markets as the UK, Ireland and South Africa. All these are now largely closed due to COVID.
“Skilled workers, blue collar workers and tunnelling experts from overseas now will be restricted due to travel.
“We have these major projects, particularly in rail, kicking off, even as we speak, and it will be difficult to get those resources to service those projects.”
Consequently, salaries have spiked over a very short period of time for those with infrastructure skills.
“For example, a senior quantity surveyor two or three months ago would have cost a QS Company in the region of $145,000.
“If I asked for that same resource today, that same resource would be commanding $165,000 to $180,000.
“Resources, and particularly skilled resources, are going to be a major challenge to get into the country.
“So where are those new resources going to come from to execute those rail projects?”
Gill noted concerns about access to heavy equipment such as tunnel boring machines.
“These are expensive pieces of equipment and cost in excess of $70 to $80 million each but current competitive markets such as China could be closed if there is another world-wide pandemic and they may have to be sourced further afield from Germany or the United States,” he said.
“The cost of those machines is sure to be significantly higher.
“Road headers, the traditional tunnel boring method, are in good supply, but trying to get those from Japan or other areas may prove to be difficult as well.”
Not to mention, many of the commodities come from China, including joinery and other materials for the construction sector, are also set to cause an issue.
“These investors and financiers face risk – there will be a premium to pay to those markets that are open.
“Then there is the risk of another pandemic and that is still there.”
Risk management lessons
These issues of both resources and heavy equipment supply mean companies must implement detailed ‘risk management’ plans and decide how they are to cope.
Gill argues that companies should avoid exclusivity clauses in contracts when it comes to product supply.
“Clients that say, ‘you must purchase from this organisation’ – companies have to push back,” he said.
“Invest in using automated plant and procure appropriate resources and capability now for early management in the future. These are the key issues.”
Opportunity as well as risk
“COVID-19 presents a significant opportunity for Australian companies to refresh business continuity and crisis management plans,”
“Having a deeper understanding of current issues will allow companies to plan for, and respond to, impacts on both local and global supply chains.
“Implementing these strategies will give these companies a competitive edge.”